Monday, 25 January 2010
Common, SGX, strike a little more fear
The Singapore Exchange (SGX) is obviously anxious to attract more and larger listings, yet fails to go far enough to help it regain the standing that it has lost in recent years. What the SGX sorely needs to address is its reputation as an effective market regulator. Seen to have been lacking in how it handled the recent S-chip debacles, the exchange now needs to prove afresh that it is one of the region’s best governed markets - a key selling point for the SGX in the past.
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Common, SGX, strike a little more fear
By MICHELLE QUAH
08 January 2010
The Singapore Exchange (SGX) is obviously anxious to attract more and larger listings, yet fails to go far enough to help it regain the standing that it has lost in recent years. What the SGX sorely needs to address is its reputation as an effective market regulator. Seen to have been lacking in how it handled the recent S-chip debacles, the exchange now needs to prove afresh that it is one of the region’s best governed markets - a key selling point for the SGX in the past.
The exchange on Wednesday proposed broadening its mainboard listing criteria and the listing of special purpose cash vehicles.
Where, previously, listing aspirants needed to have a proven profit track record, the SGX is now proposing to also admit those with just a record of operating revenue in the last financial year but with a much larger market cap.
It also suggested the listing of shell companies - which have a view to acquiring a business in the near term - if they have a market capitalisation of at least $150 million. Some observers have pointed out that the move is a revival of an earlier failed effort to push so-called blind pool funds in Singapore.
Still, the suggestions would definitely allow more listings - and, thereby, boost their numbers - but would they necessarily ‘strengthen Singapore’s position as a capital market of choice’, as SGX claims?
Some observers are already of the view that Singapore is no longer the capital market of choice in Asia - at least, not the way it used to be.
One of the Singapore market’s strongest selling points used to be the way it was tightly governed. Market aspirants and investors were drawn by the well-established and transparent legal system, and the high standards of governance - which set Singapore apart from many of its peers in the region. Investors and companies felt secure here.
But noticeable lapses in governance in the last few years - particularly the high-profile debacles involving several S-chip companies - have taken some of the shine off.
Market players were stunned that fiascos, such as those involving China Aviation Oil, China Sun Bio-Chem, China Printing & Dyeing, Oriental Century, Bio-Treat Technology, FibreChem Technologies and Sino-Environment, could have happened.
The scale and frequency of such incidents led to criticism that the SGX may have been too lax in its admission policy, in its eagerness to secure new listings.
Whether or not such criticism is fair - and the exchange has defended itself - the fact of the matter is that public perception of governance standards at the SGX has been hurt, and needs to be repaired.
What also needs to be addressed is the perception that the SGX lacks the teeth to keep its listed companies in line. The recent slew of S-chip debacles left many feeling that, while the SGX has a regulatory framework in place, it seldom enforces it. It turns cases over to the authorities such as the Criminal Affairs Department and the Monetary Authority of Singapore, leaving them to hand out civil and criminal penalties many months after the fact, instead of cracking its own whip to keep companies in check.
While it’s understandable that the SGX’s aim is to maintain a self-regulated market without unnecessary interference from the exchange itself, the perception now is that the pendulum may have swung too far to the other side.
A case in point is the ongoing drama surrounding HG Metal. CEO Wee Piew and executive director Lee Leng Loke recently resigned amid pressure from non-executive director Sia Ling Sing - who is also HG Metal’s single largest shareholder - following the company’s five consecutive quarters of losses. In their place have been appointed Hartawan Holdings CEO Chng Hee Kok and hedge fund manager Roy Ling Chung Yee.
The human drama aside, there are several seemingly innocuous issues in this case that the SGX ought to look into before they turn into regulatory hotspots.
The first is the concentration of power in one shareholder - Mr. Sia, in this case. He holds a 3.75 per cent direct stake and a 10.66 per cent stake through his company, Lingco Marine. The next largest shareholder is Winstedt Chong, chairman of Hartawan, with a 3.73 per cent stake. The rest of the shareholders hold a much smaller stake. The amount of control Mr. Sia wields over HG Metal is obvious, given his recent ability to bring about the resignation of the company’s former officers and the installation of his own directors.
In such cases, where shareholding may appear low but there is influence over the board and management as in this case - the SGX might want to consider if substantial shareholders such as Mr. Sia ought to be required to make a general offer for the company, even though that’s not provided for under the Takeover Code, to protect minority shareholders.
The other issue is the apparent connection between HG Metal and Hartawan. Mr. Chng has publicly declared that there is ‘no link’ between the two companies - but he is the CEO of a company (Hartawan) whose chairman, Mr. Chong, holds a 3.73 per stake in HG Metal.
The SGX ought to consider if this is a relationship it should explore, even if the companies may not be directly linked in the strict sense of the word.
Such issues may not seem major, but they are an example of how the exchange needs to keep its eye on the ball - and step up its game.
With competitors such as the Hong Kong Stock Exchange pulling ahead in governance reforms and the Kuala Lumpur Stock Exchange fast closing the gap, the SGX cannot afford to sit back and assume that its present regulatory regime and approach are sufficient.
It needs to send a clearer message out to the marketplace that it can and will act swiftly to keep its house in order - strike a little more fear in the hearts of potential wrongdoers - and regain the faith of market players.
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